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Bretton Woods Observer Summer 2015
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

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1.  The elephant in the classroom: the World Bank and private
education provider (SOCIAL SERVICES/Analysis)
2.  NGOs denounce World Bank land conference(LAND/News)
3.  World Bank gender strategy consultation  (GENDER/News)
4.  Gujarat fishermen sue IFC over Tata Mundra (RIGHTS/News)
5.  Public water: the antidote to failed World Bank water policy in
Lagos by Akinbode Oluwafemi, Environmental Rights Action and Shayda E
Naficy, Corporate Accountability (SOCIAL SERVICES/Commentary)
6.  Human Right Watch report raises concerns about safety of critics
of Bank projects (ACCOUNTABILITY/News)
7. Calls for World Bank safeguards without “policy dilutions” (RIGHTS/news)
8.  World Bank results: “a long-term, steady downward trend”
(GOVERNANCE/Analysis)
9.  Greece should default on its IMF loans - Guest analysis by Bodo
Ellmers, Eurodad (FINANCE/Analysis)
10.  The IMF’s chameleon policies on unions are changing colours -
Guest analysis by Carolin Vollmann, International Trade Union
Confederation (RIGHTS/Analysis)
11. Private sector: IFC reluctant to disclose information on high-
risk subprojects (RIGHTS/Analysis)
12. IMF’s chief economist announces departure (GOVERNANCE/Analysis)



=====================================================================

TOPIC:SOCIAL SERVICES
Commentary

1. The elephant in the classroom: the World Bank and private
education provider

Abstract
Bank’s high-level support for private education providers is widely
condemned, including by the UN Special Rapporteur for the right to
education, NGOs and academics.

Summary
- Bank pledges new financing for education at World Education Forum
but sizeable funding gap remains
- Bank’s support for private education providers criticised by UN
Special Rapporteur as breach of human rights
- Almost 150 NGOs oppose Bank  endorsement of private education
provider, question validity of its results


Following May’s Korea World Education Forum, co-convened by the World
Bank, with targets to widen access and promote states’ domestic
spending on education, questions have arisen about the Bank’s agenda
for global education. The focus now moves to the July UN Financing
for Development conference (see At Issue July 2015). This forum will,
among other things, set the financial goalposts for the post 2015
framework: the sustainable development goals (SDGs), including an
education goal, which will be agreed at the UN September SDG summit.
However, one of the biggest questions remains: not what the education
goal will be, or even the size of the financing envelope, but who
will deliver the goal. The ‘elephant in the room’ that is being
ignored remains the role of the private sector, given the World Bank
and UN’s increasingly different visions of how the education goal
should be met.

On the eve of the World Education Forum the Bank pledged $5 billion
for education. However, no details were revealed about where the
funding would go, only that it was for “results based financing”,
i.e. funds paid upon completion of pre-agreed targets, such as when
children complete a certain educational grade level. The funding was
immediately welcomed by Pearson, one of the biggest providers of low-
fee schools in West Africa (see Bulletin May 2014). However, $5
billion appears to be a drop in the ocean; according to the UN
Educational, Scientific and Cultural Organization there is an annual
financing gap of $22 billion to meet the SDG education goal.

The World Bank has long endorsed and invested in low-fee education
providers through its private sector arm, the International Finance
Corporation (IFC), to fill this funding gap (see Observer Autumn
2014, Bulletin May 2014). Its stance has provoked widespread
criticism, including from the UN’s Special Rapporteur on the right to
education, Kishore Singh. Singh condemned the Bank’s support on
private schools in a June report for the UN Human Rights Council:
“Promoting for-profit education, the IFC considers laws as financial
hurdles and provides guidance to private providers of education to be
‘very profitable and flourishing enterprises’. This is blatantly
disrespectful of the human rights obligations of international
bodies, including the World Bank”. Several UN committees have also
recently highlighted the threat that private schools pose to
universal education in Ghana, Chile and Uganda.

Doing the math: “Just $6 dollars a month”?
------------------------------------------

Bank president Jim Yong Kim emphasised the Bank’s support for private
schools in an early April speech in which he outlined the Bank’s
“final push” to end extreme poverty. Kim backed the approach taken by
private education providers, such as Bridge International Academies
(BIA), impressed by their use of “software and tablets in schools
that teach over 100,000 students in Kenya and Uganda”. He enthused
that: “After about two years, students’ average scores for reading
and math have risen high above their public school peers”, and that
“The cost per student at Bridge Academies is just $6 dollars a
month.”

Kim’s statement provoked global condemnation from NGOs. Nicolas
Mombrial of Oxfam International found Kim’s “suggestion that low-cost
private schools are the answer to the learning crisis in education …
profoundly troubling.”

Over 30 Kenyan and Ugandan civil society groups, such as Hakijamii in
Kenya, and the Initiative for Social and Economic Rights, Uganda,
said Kim’s statement “shows such a profound misunderstanding of the
reality of poor people’s lives”. A joint May statement endorsed by
over a hundred NGOs, including the Global Campaign for Education,
pointed out that with “other costs for textbooks, payment transfers,
or other items … the total monthly bill including school meals [for
BIA schools] … ranges between $16 and $20” per child. The statement
noted that “The poorest families in Kenya today have three times as
many children as a wealthy one”, therefore sending three children to
a Bridge academy “would cost half Kenyan households [earning KES
7,000 ($75) or less] at least 68 per cent of their monthly income”.

“Teacher[s]-turned robots”
----------------------------------------

Kim’s statement that BIA achieves superior results to public schools
has also been widely disputed. The joint NGO statement emphasised
that Kim’s claim is based on “data from a study conducted by Bridge
itself.” In its May response to the NGO statement, the Bank said it
is “supporting a rigorous, independent impact evaluation of the
Bridge program in Kenya, the first large-scale randomised controlled
trial of fee-paying schools in sub-Saharan Africa”. BIA, in its own
response to the NGO statement, confirmed this study would “commence
pupil tracking in January, 2016?.” BIA also asserted that: “Across
Africa, teacher absenteeism and neglect rates are very high. The
reality of the problems children face in getting an education need to
be faced directly, as these are the problems that Bridge exists to
solve.” However, in a June post for The Conversation blog, Steven J
Klees of the US University of Maryland described the reality of the
“new technology” which Kim celebrated: “Teachers in its schools are
expected to all read aloud to the students, word-for-word, the
content delivered on the tablet [provided to the teacher, not the
students] at the same time in each school every day.” In Klees’s view
“this teacher turned-robot barely deserves to be called education”.

The NGO statement pointed out that although the World Bank, through
the IFC, has invested $10 million in BIA, it “has no active or
planned investments in either Kenya or Uganda’s public basic
education systems.” In its response to the statement, the Bank said
that “our support for Bridge Academies is complementary to what is
offered in local school systems, to ensure that parents who decide to
invest in private schooling are also getting the best possible
education for their children.”
Salima Namusobya of the Ugandan Initiative for Social and Economic
Rights said: “If the World Bank is genuine about fulfilling its
mission to provide every child with the chance to have a high-quality
primary education regardless of their family’s income, they should be
campaigning for a no-fee system in particular contexts like that of
Uganda.”

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TOPIC: LAND
News

2. NGOs denounce World Bank land conference

Abstract/summary
NGO coalition Our Land Our Business denounced World Bank’s March
conference on land and poverty, condemning the Bank’s role in land
grabs.


The Our Land Our Business coalition of 260 organisations publicly
denounced the March World Bank’s annual conference on land and
poverty, calling it “a sham”. They criticised the conference due to
the “Bank’s role in global land grabs and its deceitful leadership on
land issues” (see Bulletin Nov 2014). Anuradha Mittal of US-based NGO
Oakland Institute called on the Bank to stop “paving the way for what
has become the systematic exploitation of land and people.” Saeed
Baloch of the Pakistan Fisherfolk Forum said: “The conference is
simply a distraction and decoy to feign dialogue with civil society.”

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TOPIC: GENDER
News

3. World Bank gender strategy consultation

Abstract/summary
The World Bank is conducting a formal consultation on a new gender
strategy concluding 15th July.


The World Bank is conducting a formal consultation on a new gender
strategy concluding 15th July. The strategy will focus on increased
employment and property ownership for women. The strategy is expected
to be published during the final quarter of 2015.

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TOPIC: RIGHTS
News

4. Gujarat fishermen sue IFC over Tata Mundra

Abstract/summary
Fishing and farming communities from Gujarat, India, has filed a
lawsuit against the International Financial Corporation.

Fishing and farming communities from Gujarat, India, represented by
US-based NGO EarthRights International (ERI), filed a lawsuit against
the World Bank’s private sector arm, the International Financial
Corporation (IFC), in April. The IFC provided a $450 million loan to
the Tata Mundra coal plant in 2008 which the plaintiffs claim has
caused the loss of their livelihood and environmental destruction.
The IFC’s accountability mechanism, the Compliance Advisor Ombudsman
(CAO), found in 2013 that the IFC had failed to enforce the
obligatory provisions of the loan agreement, which the IFC largely
rejected (see Observer June 2014). Rick Herz from ERI said: “while
the IFC purports to support this project in the name of poverty
reduction … its impacts fall hardest on the poorest.”

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TOPIC: SOCIAL SERVICES
Commentary


5. Public water: the antidote to failed World Bank water policy in
Lagos by Akinbode Oluwafemi, Environmental Rights Action, Nigeria and
Shayda E Naficy, Corporate Accountability, US

Abstract
The World Bank continues to promote water privatisation in Lagos,
despite the failure of putting a functioning water system in place,
as civil society calls for public water systems.

Failed World Bank policies promoting the corporatisation and
privatisation of our water supplies have long threatened the human
right to water. Nowhere is this more evident than in the mega-city of
Lagos, Nigeria.

Today in Lagos, 90 per cent of the city’s 21 million residents lack
daily access to safe water. Millions rely on costly or unsafe water
sources, such as poorly regulated wells and boreholes. For many
Lagosians, water arrives not through pipes to their homes, but
through shared standpipes – or worse, or in jerry cans or cellophane
bags from sources unknown to them, at a mark-up charged by those few
who have access. For many, this presents an impossible choice between
paying for clean water or paying for food, transportation, school
fees, or clothing costs.

Water woes result of World Bank failures
----------------------------------------

The World Bank holds much of the blame for the current state of
affairs. For almost three decades, it has promoted the privatisation
of water systems in Nigeria, strong-arming water policy and impeding
the development of adequate public systems.

In 1988 and 1999, the International Finance Corporation (IFC), the
World Bank’s private sector arm, advised the Lagos state government
to “reform” the water sector and privatise Lagos State Water
Corporation (LSWC). Likewise, the Bank’s first National Urban Water
Sector Reform project, instigated in 2002, drove privatisation which
it misleadingly called “public private partnership” (PPP). The Bank’s
plan failed miserably: it focused on privatisation even though
profit-oriented corporations had no interest in building the
infrastructure needed for a functioning public water system. After
the Bank’s plans fell through, its central recommendations were
nevertheless folded into a 2004 law. Pushed through in secrecy
despite opposition, the legislation corporatised Lagos’s water
utility, paving the way to privatisation by prioritising bill
collection, metering and profitability rather than universal access.

Today, the World Bank’s Second National Urban Water Sector Reform
project is following the same path, promoting privatisation with
little regard for effective public solutions that could truly work.
The Bank’s Third National Urban Water Sector Reform is pushing the
same failed strategies in other parts of Nigeria.

Despite hundreds of millions of dollars, the World Bank’s efforts in
Nigeria have failed to put anything close to a functioning water
system in place. According to a 2006 report by the World Bank’s own
Independent Evaluation Group, the “failure of the Bank’s assistance
to the Nigerian water supply sector” was evident in the fact that
“seven out of seven projects had been rated as unsatisfactory, with
unlikely sustainability and with negligible or modest institutional
development impact.”

Moving forward with privatisation would pose an even greater danger.
In June, 23 members of US Congress wrote to us: “We share your
concerns that a move towards privatisation of the water scheme in
Lagos, including PPPs, could leave the city vulnerable to the
negative impacts historically associated with various forms of water
privatisation, including rate hikes, worker layoffs, service
interruptions, and failures to adequately invest in infrastructure.”
The corporatised utility has already demonstrated some of these
problems; a move to privatisation would only worsen the situation as
seen in other cities in Africa and beyond.

Civil society demands change
----------------------------

Lagosians are fighting for our right to water. In Nigeria, people
know firsthand the devastating health toll and environmental damage
caused by transnational corporations in the oil and tobacco
industries, and refuse to cede our water systems to profit-driven
interests.

We took a major step toward public water last October, when a
coalition of Nigerians and international allies successfully demanded
that the IFC drop a proposal to attempt yet again to privatise
Lagos’s water supply. But the Bank continues to push for
corporatisation and privatisation. Projects prioritise bill
collection and cost recovery policies that strain impoverished
Lagosians but promise profit to water corporations. In August, civil
society leaders and policymakers from around the world will gather in
Lagos to share lessons and strategies to move Lagos – and cities
around the world – toward universal access and democratic control of
water. To do so the World Bank Group must abandon its harmful
policies in favour of funding for the development of robust,
accountable, and well-functioning public water systems.

Newly elected Lagos state governor Akinwunmi Ambode has promised to
work for safe and affordable water, rekindling hopes for a new
official policy that will promote public water systems that work. We
look forward to collaborating with him in the coming years to stop
the failed World Bank policies in Lagos and fulfil the human right to
water. Together we can develop a water system that is democratically
accountable, publicly managed, and delivers to all Lagosians the
clean, affordable water we need to live.

Akinbode Oluwafemi, Environmental Rights Action
Shayda E Naficy, Corporate Accountability

=====================================================================

TOPIC:ACCOUNTABILITY
News

6. Human Right Watch report raises concerns about safety of critics
of Bank projects

Abstract
Concerns have been raised about the safety of critics of World Bank
projects and the adequacy of the Inspection Panel, as a new Bank
grievance mechanism has been launched.

Summary
- New Bank project grievance mechanism launched, managed by the Bank
- Inspection Panel criticised by academics for procedures, lack of
independence
- World Bank fails to support project critics

Questions have been raised about the safety of those that publicly
criticise Bank projects and the adequacy of its accountability
mechanisms. A June report by US-based NGO Human Rights Watch outlined
how the World Bank and its private sector arm, the International
Finance Corporation (IFC), “failed to take adequate steps to help
create a safe environment in which people can express concern or
criticism about projects funded by the Bank Group without risk of
reprisal.” The report found that in 18 out of 34 complaints to the
Bank and the IFC’s accountability mechanisms, the Inspection Panel
(IPN) and the Compliance Advisor Ombudsman (CAO) respectively, the
complainants “reported that they had been threatened or faced some
form of reprisal that they believed was directly linked to their
criticism” of a Bank or IFC project. However, in many cases “Bank and
IFC officials failed to respond meaningfully to abuses.”

A new Bank accountability mechanism, the Grievance Redress Service
(GRS), was launched in April. According to GRS team lead Qays Hamad:
“The GRS is about resolving issues right when they happen and aims to
provide faster and better resolution of complaints”. It commits to
respond to the complainants with a proposal on how the issues will be
addressed. If the proposal is not accepted the complainant will be
referred to other remedy options. In contrast to the IPN, the GRS is
not independent of Bank management. It is also not restricted to
issues of policy compliance, but can choose to accept complaints
related to any problems with Bank-supported projects.

The robustness of the IPN was criticised in an article in the
February edition of The World Bank Legal Review by Burma-based
academic Yvonne Wong and Benoit Mayer of the National University of
Singapore. The authors argued: “Fundamentally, the very nature of the
Panel … falls short of what many actual or potential requesters
expect: a reparation.” The authors criticised “the lack of
participation by the claimants and the lack of transparency in the
recommendations by management to the board”, which they believe can
lead to a failure to address the claimant’s concerns. Moreover, “the
Panel process does not include a mechanism for the claimants to
appeal the Panel’s or the Board’s approved action plans.” The authors
noted: “The very existence of the Panel puts pressure on the Bank’s
staff [but] … If the Panel does not overcome the image that it works
largely for the benefit of the Bank itself, it may be seen as more
akin to an internal audit procedure than a legal process.”

=====================================================================

Topic: RIGHTS 
News

7. Calls for World Bank safeguards without “policy dilutions” 
Abstract
CSOs have raised concerns about the World Bank’s safeguards review 
as the next phase of the consultation is set to be launched. 

Summary

- CSOs write to Bank with recommendations for new safeguards 
draft
 

- May CSO letter calls for “meaningful” safeguards consultation 
process
 

- CSOs raise concerns about India’s position on safeguards




As the World Bank prepares to release the second draft of its 
proposed new environmental and social framework for consultation, 
civil society organisations (CSOs) have raised a number of concerns 
regarding the anticipated draft and the consultation process 
(see Observer Winter 2015).  The new draft was discussed by the 
Bank board’s Committee on Development Effectiveness (CODE) 
in late June and early July, and subsequently approved for the third and 
final phase of public consultation, due to start in mid July.


Prior to the June CODE meeting a letter signed by 17 NGOs, 
including Alyansa Tigil Mina in the Philippines and US-based 
‘Ulu Foundation, urged board members to “be vigilant” when 
reviewing the draft. The letter called the first safeguards draft 
“a dangerous weakening for the project-affected communities and the 
environment … [which] effectively dismantled thirty years of 
environmental and social protection.” The signatories called on CODE to 
send the new draft back to Bank management if it contains “policy dilutions”.


A late May letter to the Bank’s safeguards team signed by 48 NGOs, 
including Ecological Justice in Indonesia and US-based Accountability 
Counsel, called on the Bank to “develop a consultation plan that secures 
meaningful input on the second draft of the environmental and social 
framework”. It observed that “the first two phases of consultations 
were marred by substantial problems”. It raised concerns that the 
Bank “is considering a truncated phase three consultation structure that 
would rely primarily on web-based consultations, over the course of as 
little as two months”. The letter argued “ that an adequate budget, 
and a minimum of six months’ timewill be necessary to meaningfully 
consult stakeholders”.


In April a letter with 84 endorsements, including 56 indigenous 
peoples organisations, was sent to the Indian prime minister, 
calling India’s official response to the safeguards consultation 
“extremely problematic on a number of fronts”. This included a reference 
to free, prior and informed consent for indigenous peoples, which according 
to India’s response “can lead to legal complications, delays, increase 
in costs and delay in project execution. [The Bank] has not been able to 
explain how the new framework is simple, less onerous and burdensome on 
the borrowers, compared to the present safeguards policy.” The letter argued 
that India’s position “puts many of the country’s indigenous communities at 
serious risk of further loss of their lands and resources in the 
name of development without equity and protection of human rights”.

====================================================================

8. World Bank results: “a long-term, steady downward trend”

Abstract
A series of reports by the World Bank’s Independent Evaluation Group
raises further concerns over the Bank’s performance, as internal
staff discontent continues.

Summary
- IEG report noted continued decline in Bank’s performance,
highlighting “poor work quality”
- Four IEG reports criticised narrow analysis, ‘tick box’
consultations, weak institutional learning at the Bank
- New Bank staff survey confirms continued staff discontent with
leadership

A series of reports by the World Bank’s Independent Evaluation Group
(IEG) has raised further concerns over the Bank’s performance (see
Observer Spring 2014), while internal staff discontent continues. The
April IEG evaluation Results and performance of the World Bank Group
2014 reported that the Bank Group’s commitments have “increased amid
significant organisational changes, but development outcomes of its
lending portfolio continued to decline”. The report argued that this
continues “a long-term, steady downward trend” of the performance of
Bank-financed operations and International Finance Corporation (IFC,
the Bank’s private sector arm) investments. According to the report:
“For both the Bank and IFC, poor work quality was driven mainly by
inadequate quality at entry, underscoring the importance of getting
it right from the onset.” It concluded that the Bank Group “has to
address some long-standing work quality issues to realise its
solutions bank ambitions.” The report noted that “many of the ongoing
reforms are geared toward resolving the underlying problems” as part
of the new World Bank strategy, which includes the introduction of 14
“global practices” and five “cross-cutting solution areas” (see
Observer Winter 2014).

Other IEG reports have also identified weaknesses in the Bank’s
procedures and results. A two part series, Learning and results in
World Bank operations, was released in July 2014 and June 2015.
According to the 2015 report: “in the majority of cases the outcome
of interest, if achieved, could have been due to the Bank supported
intervention, unrelated to it, or may have happened in spite of the
Bank intervention.” A May IEG report on the poverty focus of country
programmes identified problems in the Bank’s analytical work on
poverty, which “often does not adequately address the important
social and political factors that contribute to poverty and impede
efforts to reduce it.” Furthermore, the report concluded that while
“most of the Bank’s country strategies were developed through some
kind of participatory consultations with government and
nongovernmental stakeholders … in the majority of cases, there was no
clear evidence that such consultations had a meaningful effect on the
design or implementation of Bank strategies. In some instances
consultations appeared to be more of a ‘box ticking’ exercise.”

Similar issues were identified in a May IEG report on World Bank
support to early childhood development. According to the report:
“Until investment occurs in longer-term monitoring of interventions,
the Bank will not fully understand which interventions have sustained
impact and greatest potential to stop the intergenerational
transmission of poverty”. Moreover, the Bank “lacks a strategic
framework and an organisational structure to support a coordinated
approach across global practices toward the development of children.”

Staff discontent continues
----------------------------
The April Bank results and performance report cautioned that “the
ambitious, prolonged change process within the Bank Group has yet to
produce the desired institutional clarity, streamlined processes, and
enabling environment that motivate staff to strive for excellence.”
It noted that staff feedback indicated that “incentives for improving
work quality – if they exist – are not well-communicated. There seems
to be relatively low awareness, even disbelief that high work quality
by one individual can contribute to better development outcomes.”

The IEG’s learning and results reports also identified continued
internal discontent at the Bank (see Observer Winter 2015). According
to the 2015 report “Staff indicate … that lending pressure tends to
crowd out opportunities for learning.” The report acknowledged that
the Bank’s approach to performance evaluation, rewards and
recognition is being overhauled under the reorganisation, but that
little impact has been seen so far. The Bank board’s Committee on
Development Effectiveness in its response to the 2014 report
“underscored the essential need for a culture shift in how management
and staff learn from lending operations.”

A June article by Devex confirmed that discontent remains, as the
results of the delayed staff survey were revealed (see Observer
Winter 2015, Spring 2014). Completed by 79 per cent of staff, only a
third indicated “a clear understanding of the direction in which
[senior management] is leading [the Bank ]”. The proportion of staff
“confiden[t] that the [Bank] will take action on the engagement
survey” dropped by 11 per cent compared to the 2013 survey, to 34 per
cent. In an internal message to staff the World Bank Group Staff
Association called the results “sobering, humbling, embarrassing,
humiliating, appalling”.

=====================================================================

TOPIC: FINANCE
Analysis
9. Greece should default on its IMF loans - Guest analysis by Bodo
Ellmers, Eurodad

Abstract
Bodo Ellmers of Eurodad argues that, should the IMF not get repaid by
Greece, it could finally shock the institution from being a
“political puppet” into an effective crisis response instrument.

Summary
As the Observer went to print, it remained unclear whether Greece
would repay the €1.5 billion ($1.7 billion) due to the IMF end June
and risk exit from the eurozone and even the EU. Based on a May blog,
Bodo Ellmers of Eurodad argues in this analysis that the IMF loan
should not be repaid, not just for Greece’s benefit but for the
Fund’s own long-term good.

Whoever loses in a debt crisis the IMF is always off the hook. Greece
should not just postpone loan repayments to the IMF but default on
them (see Observer Spring 2015). This would help to finally reform
the IMF from political puppet into a real and effective crisis
response instrument. It is common practice that borrowers grant
preferred creditor status to the IMF, and pay off the Fund loans in
full and in a timely manner. Whilst the IMF’s preferred creditor
status is not written into international law or the IMF’s own
Articles of Agreements, all countries traditionally stick to this
practice.

Repaying the IMF often comes at high cost to borrower countries’
development and for their other creditors who often also have to take
a haircut. The fact that everyone repays the IMF means that lending
is essentially risk-free for the Fund. And as in all other cases when
lending is considered risk-free, the lender is encouraged to act
irresponsibly.

Political hijacking of the Fund
-------------------------------

The IMF’s participation in the lending to Greece through the Troika
(with the European Central Bank, ECB, and European Commission) since
2010 has been primarily to the benefit of Greece’s private creditors.
It was clear from the start that Greece was insolvent and that the
loans would not put the country back on a debt sustainability track.
Ninety per cent of the loans went straight to private creditors.
Greece was required to refinance payments to creditors who then left
the country. Greece would never be able to repay the loans, as these
measures did not even begin to address the insolvency problem, but
simply changed the creditor structure from bondholders to the Fund,
ECB and European Commission.

Until the Greek crisis, the IMF’s own rules required that a country
with an unsustainable debt burden restructure and reduce its private
debt burden before it could access IMF loans. However, some of the
IMF’s ‘major shareholders’ were interested in saving their own banks
and investors who had lent recklessly to Greece. In 2010 the IMF
executive board quickly passed the ‘systemic exemption clause’, which
legalised the loans to Greece. Among foreign banks, French banks were
the primary beneficiary of the lending; German and British banks were
second and third.

The coalition of ‘major shareholders’ in favour of a loan was strong
enough to overcome resistance by more prudent voices. Paulo Batista,
who represents Brazil and other Latin American countries on the IMF
board and was present for the original decision to lend to Greece,
confirmed in March that the Fund “gave money to save German and
French banks, not Greece … [and] put too much of a burden on Greece
and not enough of a burden on Greece’s creditors” (see Observer
Spring 2015).

This Greek tragedy is just one of many irresponsible lending cases
that the IMF has had to conduct due to political pressure by the
‘major shareholders’, which tend to hijack this international
institution with its nearly universal membership of 188 countries for
their vested economic and geostrategic interests. A recent example is
the generous IMF lending to Ukraine, which is clearly beyond any debt
sustainability considerations (see Bulletin Nov 2014).

Often it is the smaller IMF members that try to prevent the IMF from
engaging in irresponsible lending operations, but the IMF’s ‘one
dollar – one vote’ voting system gives small economies little
influence (see Observer Autumn 2014). Moreover, under the current
system, the IMF always gets its money back. No matter how
irresponsible the lending, it is all too easy to convince the IMF’s
board to sign off on politically-motivated loans that make no
economic sense.

IMF reform: from political puppet to crisis management tool
-----------------------------------------------------------

The most effective way to prevent irresponsible lending is to make it
clear to lenders that they won’t get their money back if they lend
irresponsibly. This is why Greece should default on the IMF loans and
force the IMF to write them off. This would substantially strengthen
the more prudent voices in the IMF decision-making processes.

Only by introducing a default-risk can the IMF be turned into a
responsible lending institution. Only by including the IMF in
sovereign debt restructurings when these are needed can we ensure in
future that IMF resources are not used  to bail out private
creditors. Greece, by defaulting on its IMF loans, could trigger an
overdue accountability process that would make the IMF stick to its
core business, refrain from political lending on behalf of ‘major
shareholders’ and provide emergency liquidity to countries in
situations of exceptional shortages of finance according to clear and
just rules.
Bodo Ellmers, Eurodad

=====================================================================
TOPIC:RIGHTS / Analysis

10.The IMF’s chameleon policies on unions are changing colours - Guest
analysis by Carolin Vollmann, International Trade Union Confederation

Abstract
New IMF research has shown the positive impact of trade unions have
on reducing income inequality; however the Fund's own European
austerity programmes indicate that the IMF ignores its own evidence.

Summary
- New IMF research demonstrates the beneficial effect of trade unions
on income distribution
- Fund continues to advocate anti-union measures in Portugal, Romania
and Greece
- Austerity measures in Greece have doubled poverty rates amongst
older people, imposed healthcare cuts


The March issue of the IMF’s Finance and Development magazine
showcased a forthcoming research paper on the impact of trade unions
and minimum wages on inequality. The findings contravene claims by
anti-union ideologues and, yes, the IMF itself  that unions adversely
affect inequality by creating an insider-outsider division.

The new findings show what academic researchers and trade unions have
long known: unions reduce inequality in the distribution of income.
The IMF found that high unionisation reduces the income advantage of
top income groups relative to the bottom and middle incomes.
According to its research, the decline in unionisation explains a
sizable proportion of the increase in inequality due to the increase
of the top income share since 1980.

This research adds to other recent work by Fund researchers related
to inequality. In 2011 and 2014 IMF researchers Jonathan D. Ostry and
Andrew Berg reported that more egalitarian economies are associated
with higher and more durable growth. In 2013 the IMF concluded that
“Inequality of wealth and income can lead to wasted productive
potential and a misallocation of resources, undermining long-run
growth.” These findings were reconfirmed in their latest June
research paper on inequality which showed that increasing the income
share of bottom and middle incomes has had a strong, positive effect
on GDP growth. An increase in top incomes was shown to reduce medium-
term growth projections “suggesting that the benefits do not trickle
down.” The IMF paper also reaffirmed that “better access to education
and health care and well-targeted social policies … can help raise
the income share for the poor and the middle class.”

Assessing the relationship between inequality and fiscal policy in
January 2014, the IMF found that “Reductions in the generosity of
benefits and less progressive taxation have decreased the
redistributive impact of fiscal policy since the mid-1990s.”

IMF policy ignores its own evidence
-----------------------------------

Given these findings one might expect the IMF to press countries to
adopt policies that encourage unionisation and strengthen collective
bargaining, increase the generosity of benefits and make taxes more
progressive, with the promise of gains not only for workers but for
economic growth overall. Quite the opposite has occured: IMF policies
continue to undermine incomes of working class families and trade
unions activities. In almost all programme countries, wages and
employment in the public sector have been put on the chopping board
of austerity. For European countries in particular this was just the
start. In Portugal (2011-2014), Romania (from 2009) and Greece (from
2010), IMF lending agreements after the crisis weakened employment
protection, abolished or severely limited the scope of national
collective bargaining, restricted the use of extensions, shortened
the validity of collective agreements, and extended the scope for
bargaining by non-union representatives.

The phenomenon of saying one thing and doing another in this context
was described as “Gattopardo economics” by researcher Thomas Palley
in 2013; i.e. cynically presenting the same old response as if it
were a major change in order that everything can stay the same. In
other words, the IMF is driving the discussion on inequality to cover
up the policies it pursues which seem more geared to securing future
foreign investor’s profits at the expense of workers than to
encourage growth by tackling inequality.

Confronted with the inconsistency between its research and policies,
the Fund likes to emphasise its commitment to “protecting the most
vulnerable” in country programmes, such as in Greece. It claims that
pension cuts target highest pension recipients and supplemental
pensions, it supports employment programmes for young people, and
enhances health care access by handing out vouchers for the
uninsured. The reality in Greece is very different. The share of the
population aged 65 and over in or at risk of poverty doubled from 16
per cent in 2010 to 33 per cent in 2013, according to Eurostat. Over
200,000 young and highly educated people left the country in hope of
a better future elsewhere. The World Health Organization estimates
that roughly 2 million Greeks, one fifth of the total population,
have lost health care coverage since 2011. Charity organisations in
Greece report that the humanitarian crisis has reached levels not
seen before in a developed country context.

If the IMF had paid attention to evidence rather than ideological
preconceptions, it would have had a very different policy stance. If
it had a serious interest in avoiding future crises it would have
seized the opportunity to re-regulate the financial markets instead.
The Fund would have looked at the experience of Northern Europe in
achieving high levels of quality employment through centralised
collective bargaining and comprehensive social protection. Hopefully
the Fund will do a better job in the not-too-distant future when the
‘great recession’ may return to the centre-stage and the continuing
flaws in the global (and European) financial system re-emerge.

Carolin Vollman, ITUC

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TOPIC:RIGHTS
Analysis

11. Private sector: IFC reluctant to disclose information on high-
risk subprojects

Abstract
Civil society continues to pressure IFC on disclosure of high risk
subprojects, as the IFC responds to a critical report detailing the
human rights consequences of its investments.

Summary
- IFC responds to NGO report detailing negative human rights
consequences of investments in financial intermediaries
- NGOs continue to demand disclosure of high-risk subprojects and
better management of project risk

A week ahead of the IMF and World Bank April spring meetings in
Washington, a group of ten NGOs led by Oxfam released a report titled
The suffering of others, which provided evidence of the negative
human rights impact of the International Finance Corporation’s (IFC,
the World Bank’s private sector lending arm) investments through
financial intermediaries (FIs, see BWP April 2015).

While acknowledging some positive steps taken by the IFC, the report
argued that the IFC remains unable to meet its commitments to “do no
harm” and to undertake due diligence in the process of identifying
and managing risks and impacts as required by its 2012 sustainability
framework.

The IFC responded with a letter highlighting steps taken to address
the report’s concerns. Noting that its work “involves taking risks”,
the IFC stated that its “work through FIs provides much-needed access
to finance for millions of individuals, homes, and micro, small, and
medium-sized enterprises – far more than we would ever be able to
reach on our own”.

Reacting to the letter, in an early July response to the IFC, NGOs
emphasised that it is imperative to distinguish financial risk from
environmental and social risks, which the IFC is obligated to avoid.
The NGOs recognised that the IFC’s response and its April
presentation to the Bank’s board include a number of positive steps,
but requested clarification on issues, such as the extent to which
the risk assessment to inform client selection will move beyond
private equity investments and encompass all FI subprojects. The NGOs
also proposed that third party input into the risk appraisal be
incorporated into the process. Reacting to the IFC’s commitment to
review “the top exposures of the Fl’s portfolio to determine its
exposure to high-risk sectors”, the NGOs requested that this
information be made public, thus greatly increasing the
accountability of the client selection process.

In its response to the report, the IFC stressed that its ability to
be more transparent is constrained by banking regulations that
“restrict disclosure of investments within their portfolios” and that
it “moved beyond [its] current Access to Information Policy
requirements to begin disclosing all private equity fund sub
projects.” While recognising that the disclosure of private equity
fund subprojects is a positive development, the NGO letter referenced
the IFC’s accountability mechanism, the Compliance Advisory
Ombudsman’s (CAO) audit of Honduras’ largest bank, Ficohsa, in which
the IFC has invested (see Bulletin Sept 2014). The audit found that
“it is unclear to CAO why IFC cannot require regular disclosure in
relation to FI sub projects. “The NGOs maintained in their letter
that “the presumption of banking client confidentiality can be
overturned by regulation or agreement with the client” and that there
is no prohibition against disclosure by clients of their relationship
with the bank. They noted that in most jurisdictions security
regulations require publicly listed companies to disclose their
debts.

The NGOs also observed that the IFC requires its direct clients, as a
condition of financing, to agree to the disclosure of the investment
and that there is therefore no reason why a similar arrangement could
not be made with regards to the sub-investments of FI clients. They
noted that the IFC’s performance standards “contain an implicit
requirement for disclosure, as FIs are obliged to establish grievance
mechanisms that are known and accessible to people affected by their
investments.”

The NGOs recommended that the IFC require FIs it invests in to
obligate their clients of a certain size, risk profile and sector to
disclose their investments. NGOs called on the IFC to collect and
help to disseminate this information through a dedicated website.

Speaking in April during the Bank spring meetings, Cecilia Mérida, a
leader from a Guatemalan community impacted by an IFC FI investment
(see Bulletin Feb 2014), asked: “What are the human costs of the
loans, given the social and environmental safeguards are not working?
The human costs are extremely high and very harmful. They translate
into persecution, killings, imprisonment, and criminalisation.”

====================================================================

TOPIC: IFI GOVERNANCE
News

Abstract/summary
Olivier Blanchard, IMF's chief economist to leave for US think tank
Peterson Institute.

12. IMF’s chief economist announces departure

Olivier Blanchard will leave the Fund, effective end of September,
after seven years as the director of the research department, a role
he assumed just two weeks before the 2008 Lehman Brothers bankruptcy.
His successor is yet to be announced.

Blanchard will join the Peterson Institute for International
Economics, a Washington-based think tank, in October. Mark Weisbrot
of the Washington-based think tank Center for the Economic and Policy
Research commented “Blanchard presided over some significant changes
in IMF research ... however ... IMF policy is decided by its
directors and governors, and so it is not clear how much difference a
new research director will make.”


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